The IRS Issues Guidance on the ACA’s Individual Mandate While Congress Looks to Repeal It
During 2017, the IRS has steadfastly avoided being swayed by the political breezes, even when they seemed to reach hurricane-level velocity. When President Trump and Republicans in Congress were readying their repeal and replace assault on the Affordable Care Act (ACA) , the IRS was quietly preparing to enforce the ACA . By the time the repeal and replace efforts seemed to have ended, the IRS was ready to start issuing penalty notices to organizations that appeared to have failed to comply with the ACA for the 2015 tax year.
The IRS began issuing Letter 226J in November.
Now with Congress considering the repeal of the ACA’s individual mandate, the IRS is once again showing it will not take its eye off the ball in moving forward with its responsibilities in enforcing the ACA.
The IRS has issued guidance on how taxpayers can calculate the affordability exemption for the ACA’s individual mandate. The guidance addresses the challenges for individuals who live in areas where no bronze level plans are available in the healthcare marketplace for 2017.
Government healthcare exchanges in some regions of the country offered no bronze-level insurance plans in 2017, which could prevent individuals from applying for an exemption from the individual mandate. One of the requirements to qualify for an exemption is to show that the individual lacks access to affordable minimum essential coverage. An individual lacks access to affordable coverage if the individual’s required annual contribution for minimum essential coverage exceeds a percentage 8.16% of the individual’s household income for 2017. Typically, individuals purchasing bronze plans had the best chance of qualifying for the exemption.
The ACA Marketplace has five plan categories – Bronze, Silver, Gold, Platinum, and Catastrophic. Bronze plans usually have lowest monthly premiums and highest deductibles and out-of-pocket costs among comprehensive health plans. In 2017, some 23% of individuals purchased bronze-level plans and 71% had silver-level plans, representing 94% of the plans purchased through the Marketplace.
IRS Notice 2017-74 encourages individual taxpayers to use the lowest cost silver-level plan to see if they qualify for the affordability exemption in areas with no ACA bronze-level plans are available on healthcare exchanges.
The IRS has indicated that it is only accepting 2017 tax returns that confirm the status of taxpayer healthcare coverage during the year. This is a change from past filing seasons, when the agency accepted tax returns without this information. Most taxpayers who have minimum essential coverage check the “Full-year coverage” box on Form 1040, 1040A or 1040EZ. Individuals claiming exemptions use Form 8965, Health Coverage Exemptions, when filing their tax returns.
For tax purposes, an individual qualifies for an exemption from the ACA’s individual mandate in 2017 if:
- The minimum amount you must pay for the annual premiums is more than 8.16% of your household income for 2017
- You have a gap in coverage that is less than three consecutive months
- You qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage, or belonging to a group explicitly exempt from the requirement
Individuals not required to file a federal income tax return are automatically exempt from the shared responsibility provision for that year and do not need to take any further action to secure an exemption.
To learn more about ACA compliance in 2021, click here.
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